Italian Bonds Gain After Nation Sells Most Debt Since May 2011

Bloomberg Businessweek

http://www.businessweek.com/news/2014-01-13/italian-bonds-gain-after-nation-sells-most-debt-since-may-2011

By Eshe Nelson and David Goodman January 13, 2014

Italy’s government securities advanced for a second day as the nation raised the largest amount from an auction of bonds in a single day since May 2011.

The nation’s two-year note rose for the first time in four days as the government sold three-year notes at a record-low yield. German bunds gained for a second day, with 10-year yields falling to match the lowest level in four weeks, after a U.S. report last week showed companies added workers at the slowest pace since January 2011. Bonds from Spain to Greece have rallied this year amid signs the European debt crisis is easing.

“The auction went well,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan, citing the amount raised. “We expect the medium-term trend for the periphery this year to be further tightening in the spreads.”

Italy’s 10-year yield dropped two basis points, or 0.02 percentage point, to 3.90 percent at 4:20 p.m. London time after declining to 3.83 percent on Jan. 9, the lowest since May 9. The 4.5 percent bond due in March 2024 rose 0.17, or 1.70 euros per 1,000-euro ($1,365) face amount, to 105.32.

The country’s two-year yield fell one basis point to 1.01 percent after rising two basis points in the past three days.

Italy’s Treasury sold a combined 8.2 billion euros of debt maturing in December 2016, May 2021 and September 2028. It allotted the three-year notes at a yield of 1.51 percent, down from 1.79 percent at the previous sale of the maturity Nov. 13.

“In the near term, the downward move in yields has more to run,” said Jan Von Gerich, a fixed-income strategist at Nordea Bank AB in Helsinki. “In the next few weeks it’ll probably go a bit lower.”

Most Volatile

Volatility on Belgian bonds was the highest in euro-area markets today, followed by those of Germany and Spain, according to measures of 10-year debt, the yield spread between two- and 10-year securities and credit-default swaps.

Belgium today mandated banks to sell 10-year bonds, while Latvia, which became a member of the euro region at the start of this year, hired banks for a seven-year sale. Belgian 10-year bond yields dropped four basis points to 2.47 percent.

The German government sells 10-year inflation-linked securities tomorrow, while Netherlands and Spain are also scheduled to auction debt this week.

Bunds Gain

German bunds extended gains from last week when a report showed U.S. payrolls increased at a slower pace than economists forecast. The 74,000 gain in December jobs followed a revised 241,000 advance the previous month, according to Labor Department figures. The median forecast of economists was for an increase of 197,000.

Germany’s 10-year yield fell three basis points to 1.82 percent, matching the lowest since Dec. 16. The yield declined 10 basis points last week.

“Bunds are still performing in the aftermath of Friday’s weak payrolls number,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. “However I suspect that at 1.82 percent in bunds we’re getting close to the bottom of the current trading range.”

Spanish bonds fell, with 10-year yields rising two basis points to 3.84 percent after dropping to 3.67 percent on Jan. 9, the lowest since September 2006.

Portugal’s Secretary of State for Treasury Isabel Castelo Branco said she “estimates” it will be possible for the country to sell bonds through auctions before its bailout program ends in the middle of May.

‘Some Regularity’

“It’s above all a sign that we have access with some regularity,” Castelo Branco said in an interview at the Finance Ministry in Lisbon on Jan. 10. “Being able to again sell through auctions is a goal, and it means we will be in a more regular program of debt issuance.”

Portugal is trying to regain full access to debt markets with the end of its 78 billion-euro rescue program from the European Union and International Monetary Fund approaching. The country has been relying on banks to sell bonds, including last week’s sale of 3.25 billion euros of five-year notes and two other deals in May and January 2013.

Portugal’s 10-year yield declined five basis points to 5.31 percent after dropping to 5.19 percent on Jan. 8, the lowest since May 23.

Italy’s bonds returned 6.5 percent in the 12 months through Jan. 10, according to Bloomberg World Bond Indexes. Spain’s rose 11 percent, while Germany’s lost 0.1 percent.

To contact the reporters on this story: Eshe Nelson in London at enelson32@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net